Wednesday, 4 May 2011

WestJet's profits soar!

 

A steady demand to fly, despite fare hikes designed to offset rising fuel prices, helped send WestJet's profits for the first three months of the year soaring.

The Calgary-based airline reported first quarter earnings of $48.2 million, or 34 cents a share, a significant increase over the same period a year earlier, when profits were $2.4 million, or two cents a share.

"I'm pleased with the strength of consumer demand and the market's ability to absorb the fare increases we've put in place," Saretsky told analysts on a conference call Tuesday morning.

"We remain confident in the resiliency of our business model and in our ability to navigate through the elevated fuel cost environment."

While the country's secondlargest carrier has raised fares five times since the beginning of the year -including one last week that added between $5 and $15 to each leg -passenger demand has remained high.

The strength of demand has heartened industry watchers, who are hopeful the increased fares can be sustained once fuel prices dip.

WestJet is forecasting fuel prices of between 95 cents a litre and 98 cents a litre in the next quarter, but Saretsky points out they initially budgeted at 73 cents a litre.

"We know the company needs to raise fares to offset those fuel costs," Walter Spracklin, of RBC Capital Markets, said. "But who will be the ultimate decider of whether those fares go through is the customer.

"And if the customer balks at some of these fare hikes, then the airlines, WestJet and Air Canada and any airline, will be challenged to offset the fuel cost rise if the customer is pushing back on price.

"The good news is . . . there's no indication at this point the customer is being destimulated with respect to those fare increases."

Saretsky said the company is watching the reaction to prices closely, adding "we haven't quite hit that point yet, demand continues to be very strong.

"Our forward bookings for (the next six months) are strong."

The company's revenue per available seat mile -a key performance measure -rose 12.1 per cent for the first quarter of 2011 compared to the first quarter of 2010, which WestJet said was a factor of slightly fuller planes and a significant improvement in yield.

As well, its revenues climbed 25 per cent in the quarter, year over year, to $772.4 million.

CFO Vito Culmone said as the economy continues to recover, "We're optimistic that demand for air travel will remain strong and we anticipate continued strong RASM growth in the second quarter of 2011."

Spracklin said his one concern is whether WestJet's push into the "eastern triangle" -flying between Toronto, Ottawa and Montreal -which is already hard-fought territory for Air Canada and Porter Airlines, is the best place to add capacity.

But overall he says its growth has to come from adding business travellers, vacation travel and connecting traffic through increased partnerships with other carriers.

"It's the next logical step that the company needs to do to continue to grow," he said.

Hugh Dunleavy, WestJet's executive vice-president of strategy and planning, said the airline continues to talk with potential partners, planning to add one in each geographic area, but doesn't expect a South American deal to be announced this year, nor an expansion of its British Airways arrangement.

WestJet, which is also looking to increase revenue from its second bag fees and pre-selected seat charges, is launching new TV commercials.

"We've been working really hard on the recovery post our Sabre implementation," Saretsky said of the reservation system that caused the airline grief when it was put in place last year.

"We've got the software working nicely for us, we've got a real feeling of momentum . . . we've got our mojo back.

"Now it's time to talk about it."

WestJet's profits soar despite fuel costs, fare increases

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